Source:  MEATINGPLACE.COM, 2/24/11

Sanderson Farms posted a hefty net loss in its fiscal first quarter, hurt by higher feed costs and an oversupply of chicken on the market, and said it would delay construction of a second processing plant in North Carolina.

Sharply higher feed costs combined with decreased market prices for chicken caused the deterioration in margins, company executives said. The company’s feed costs rose 21 percent in the quarter, while chicken prices fell 4.8 percent.

"Experience tells us that production adjustments will ultimately balance supply and demand and support market prices that will allow us, over time, to offset higher feed costs. Such adjustments will take time,” Chief Executive Joe Sanderson said.

The industry is unlikely to cut production near term, Sanderson said, even with about three-quarters of processors now losing money. That’s because companies are expecting a seasonal rise in chicken prices.
“There’s optimism and hope that you are going to see some price improvement in spring and summer. I think people are going to wait for that,” Sanderson said on a conference call with analysts.

Industry participants have been losing money only for about three months, he noted, after being profitable for the past two years. “I think their balance sheets are good enough to wait for a while,” he said.

Food service demand won’t improve, he added, until more American are back to work and can afford to dine in restaurants again.

Retail grocers have indicated plans to feature more chicken in the spring in anticipation of much higher beef and pork prices, the company said.

Sanderson Farms said it expects to process 2.73 billion pounds of chicken in fiscal 2011, a 6.2 percent rise from the prior year, with the increase mostly due to the ramp-up of its new plant in Kinston, N.C.

While Sanderson Farms is delaying construction of a second processing facility in North Carolina, Sanderson said the company doesn’t plan to cut its production. “We don’t anticipate reducing production right now,” he said. “It would be a hardship on our growers to do that.”

The company also announced an increase in its revolving credit line, to $500 million from $300 million, giving it the capability to build the second plant when conditions are right.

Laurel, Mississippi-based Sanderson reported a first-quarter loss of $33.6 million, or $1.52 per share, compared with a profit of $15.8 million, or 75 cents a share, a year ago.

Excluding a charge for adjusting its inventories, the company said it lost 87 cents per share. Analysts on average had expected a loss of 33 cents, according to Thomson Reuters.

Revenue rose to $427.7 million from $420.1 million.

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